Mukesh Ambani’s Reliance Jio Infocomm Ltd signed a telecom infrastructure-sharing accord with Sunil Mittal-led Bharti Airtel Ltd, India’s biggest mobile phone services provider, ending the rivalry between two of India’s biggest business groups and charting a new course that may lead to substantial cost savings. Ambani is venturing into the telecom business through Reliance Jio, a unit of Reliance Industries Ltd (RIL), which is expected to start the nation’s largest 4G-based wireless communications service next year.

The agreement is aimed at avoiding duplication of infrastructure and will allow Bharti Airtel and Reliance Jio “to utilize each other’s infrastructure including their optic fibre network, under-sea cables, wireless towers and Internet broadband services”, a joint statement issued by the two companies said. While the companies claim the agreement will lead to cost reductions, analysts are sceptical.

Bharti may cede its competitive advantage of having an established network by sharing the infastructure with Reliance Jio, said Kunal Bajaj, an independent telecom expert, who termed Bharti’s move to be puzzling. “This agreement comes as a complete surprise. They have always been rivals. Bharti has access to a significant amount of infrastructure that it has built up over the years and loses significant competitive advantage by giving access to a newcomer like Reliance,” said Bajaj.

“Bharti has no need to roll out 4G aggressively, at least till the ecosystem for the technology matures. Even today, other major telcos like Vodafone are saying they don't see 4G as a deal breaker and have no plans to get into it.” In fact, Reliance and Bharti plan to expand the scope of the agreement further to include areas such as spectrum and networks, when government rules allow it, the companies said.

“The arrangement could, in the future, be extended to roaming on 2G, 3G and 4G, and any other mutually benefiting areas relating to telecommunication, including but not limited to jointly laying optic fibre or other forms of infrastructure services. The pricing would be at ‘arm’s length’, based on the prevailing market rates,” the statement said. Reliance Jio’s 4G venture marks the second time that Ambani is entering the telecommunications industry in 12 years. I

n 2001, he launched what was then called Reliance Telecom Ltd. In 2005, he handed over the business to his then-estranged younger brother Anil in a division of the group’s assets. Reliance Telecom was later renamed Reliance Communications Ltd. Reliance Jio earlier this year signed a telecom infrastructure-sharing deal with Reliance Communications. The new agreement may give Reliance Jio access to around 140,000 towers, 180,000 route kms of domestic optic fibre and 230,000 route kms of undersea cables that are in Bharti’s control.

The agreement would give Bharti access to RIL’s optical fibre network that it has been aggressively rolling out across the country, as well as 4G spectrum in telecom zones where Bharti failed to win it in the 2010 auction. Even through the agreement appears to favour Reliance now, Bharti is likely to get access to Reliance’s 4G spectrum once the government allows sharing of the airwaves for offering high-speed Internet services, said a senior executive with one of the companies, requesting anonymity.

Bharti has 4G spectrum in just eight telecom circles while Reliance has in all 22, but the latter does not have 2G or 3G airwaves anywhere. “For now this agreement is just for towers where Reliance is facing gaps in network due to the short coverage area of the LTE (long-term evolution, a 4G technology) that it plans to roll out. This is only expected to be around 3,000 towers,” the executive said. “Wherever there is a redundancy, we will share resources to bring down cost and significantly improve efficiencies,” said the company executive.

“We will do inter-circle and intra-circle roaming whenever it is legally allowed. RIL is expected to roll out its services by middle of next year and should have covered the whole country by this time next year, which could be used by Bharti. Both bring valuable resources to the table.” This is the second such infrastructure sharing agreement between the two companies, after Reliance Jio announced on 23 April that it had signed an Indefeasible Right to Use (IRU) agreement, under which Bharti would provide data capacity on its i2i under-sea cable that connects India and Singapore.

The new accord comes a day after Ambani said his company was open to collaborating with Mittal to provide telecom services in Punjab. He was speaking at the Progressive Punjab Summit. Ambani said that Reliance Jio would spend as much as Rs.2,500 crore over the next year in the state to roll out 4G-based mobile communications services. Bharti also announced that it had signed an agreement with the state of Punjab to invest more than Rs.4,000 crore over the next five years to connect all towns and villages in the state with its high-speed 4G LTE services.